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3 Sure Things: Death, Taxes, and New iPhone Demand

25 September 2014 in Hardeep's Thoughts

There wasn’t much about Apple’s newest iPhone release that was left to the imagination, such is the case with these events merely a confirmation of what’s been leaked around the web for weeks.

And sure enough – the larger screen size was perceived by many as the final admission that Apple had needed to catch up in that department, as well as an intention to encroach on the half of the high-end smartphone market controlled by the Android operating system.

After Apple declared earlier this week that it had sold 10 million iPhone 6s in the opening weekend, many analysts ratcheted up their expectations of how the new devices would perform.1

As Barrons.com noted, Goldman Sachs analyst Bill Shope wrote that the results were “even more impressive given [the] lack of initial China availability.” Shope said that he continued to believe the iPhone 6 refresh could drive a “powerful hardware refresh in Apple’s installed base and trigger accelerating new user growth.”

 

Shope also suggested that the 5 ½-inch screen on the iPhone 6 Plus could also counter slowing growth of the company’s iPad tablets. Overall, Shope said he expected iPhone sales (of all kinds) of 37.9 million units for the company’s September quarter.

His bullishness was hardly a lone voice in the wild. Brian Blair of Rosenblatt Securities said that the lack of supply actually understated the new device’s potential. Blair said 10 million units was a “strong number, but [we] don’t feel it paints a perfect picture of demand, given our recent view of production issues. In short, if Apple had made 15 million iPhone 6 units available in the opening weekend, we think they would have sold them all.”

Further, Blair anticipates that Apple will move 70 million iPhones during the December quarter, ahead of current Street estimates.

The anticipation of Apple’s announcement had already been a boon for the company’s shares, as well as those of other companies tied to the mobile internet space. Apple’s stock has risen more than 12% in the past three months.

In addition, the Mobile Internet Tsunami motif, where Apple shares have an 18% weighting, have risen 6.2% in the past three months. The S&P 500 is up 1.35% in that time frame.

Over a one-year period, the motif has gained 22.9%; the S&P 500 has risen 17.17%.

Of course, a cautionary note for investors is how much of the increased demand for a new iPhone will ultimately hurt companies more closely tied to the Android platform. Much of the analyst consensus varied from “some” to “a lot.”

Rosenblatt’s Brian Blair wrote that he expected Apple’s larger-screen phones to take “meaningful” share from Android over the next year.

“With the larger screen and numerous new iOS 8 features, Apple has removed many of the key differentiating factors that attracted consumers to Android devices,” Rosenblatt wrote.

On the other hand, it seems doubtful that the Android contingent will appease Apple’s plans – and that could ultimately be good news for mobile internet companies and their shareholders.

1Tiernan Ray, “Apple: Street Cheers ‘Impressive’ iPhone 6 Sales, Production Boost May Last into March,” barrons.com, Sept. 23, 2014.

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